The Value of a Strong Culture

by Matt Kelly on August 3rd, 2018

The Value of a Strong Culture

A compliance officer can never stop preaching about the value of a strong ethics and compliance function. As we slip into the slow season of August, let’s ponder a few benefits of a strong ethical culture — so that you’re ready to return to the fight this fall as budget planning for 2019 picks up.

Strong Culture Reduces Instances

A strong ethical culture reduces the “work” of compliance. If employees have a deep appreciation of how the company defines ethical behavior and how it wants them to behave, you’ll have fewer instances of misconduct that trigger investigations, regulatory disclosures, or internal control audits.

I chose the words “deep appreciation” in the above sentence deliberately. That’s not the same as “clear understanding.” A company can always state its ethical principles clearly, and employees can always then disregard those principles anyway. Employees need to embrace those principles in their daily conduct. That’s what turns ethical culture into a preventative measure, which reduces the corrective actions a compliance function might need to take.

Strong Culture Keeps the Whole Together

A strong culture allows you to weather the storm. Mistakes and misconduct will still happen at your company. Those “negative reputation events” can come quickly, cause enormous disruption, and might not even be accurate portrayals of what actually happened. That’s life in our highly regulated, highly polarized, highly interdependent world.

Companies with a strong ethical culture can reduce the disruption those events bring because a strong culture keeps the whole together — and that’s something all stakeholders, inside the organization and out, can see.

For example, imagine one local manager retaliating against a whistleblower, and documentation of that abuse is shotgunned onto the Internet for all eternity. A strong culture can mean the difference between the public thinking, “That person is a jerk” or “The whole company must be like that.”

Strong Culture Wins

A strong culture wins favor with regulators. Regulators, particularly in the banking sector, now talk about the importance of a strong culture constantly. That attention to culture could take the form of thoughtful incentive compensation plans (ones that discourage excessive risk-taking), or a clear determination to hold employees accountable for personal misconduct.

That spirit of taking ethical conduct seriously is behind the Justice Department’s FCPA Corporate Enforcement Policy announced last year. To win full credit under the policy, a company with FCPA issues must voluntarily disclose trouble; cooperate fully with regulators; and remediate the underlying policy or control weaknesses. A company cannot easily (or cheaply) hit those marks without a serious commitment to good conduct — that is, a strong culture of compliance.

Strong Culture Allows for a Risk-Assured Manner

A strong culture lets a company execute business processes in a risk-assured manner. This is a corollary to our first point above. In organizations with a strong culture, where employees know what they’re allowed to do and how to do it, they can go about their jobs more quickly and efficiently. Ultimately that brings a strategic advantage over competitors.

For example, a company that takes due diligence of third parties seriously (and smartly!) might not onboard new business partners more quickly, but those relationships are likely to be more stable over time. That will alleviate your organization’s challenge of finding reliable business partners, and allow your company to focus more on putting those relationships to full work.

Along similar lines, a thorough process for training new employees on acceptable conduct won’t accelerate your hiring process, but it will allow those employees to accelerate all the other work they do after they’re on board — because you’ll have less risk of personal misconduct catching you by surprise, forcing you to fire that high-performing star who just grabbed an intern.

I often say building an ethical corporate culture is a lot like exercise. It takes time and long-term commitment, and doesn’t feel good the first time you do it. Over the long term, however, exercise unquestionably is good for your health and the benefits pay off in myriad ways.

Building a comprehensive structure for your compliance program is essential to effectively and efficiently mitigate risk. And while risks vary from one company to another based on industry, location, and partners – thereby disqualifying any one-size-fits-all compliance program – the underlying structure of a program can, to a reasonable extent, be broken down into a set of components.